Which of the Following Should Be Expected to Occur When

question 15

Multiple Choice

Which of the following should be expected to occur when a firm significantly increases its proportion of debt financing?

• A)The required return on debt will decrease
• B)The required return on equity will decrease
• C)The company cost of capital will increase
• D)The company cost of capital will remain unchanged

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Definitions:

Fixed And Variable Cost

Fixed and Variable Cost are two types of costs incurred by businesses; fixed costs do not change with the level of production or service, while variable costs vary directly with the level of production or service.

Planning Budget

A budget created at the beginning of the budgeting period that is valid only for the planned level of activity.

Oil Well Service Company

A business that provides a variety of services to the oil industry, including drilling, maintenance, and repair of oil wells.

Planning Budget

A budget created for a specific level of activity, used as a tool for decision-making and financial planning.